Relating to gambling regulation, including enforcement, license fees, tax rates, and the use of associated revenue, making appropriations, and including effective date provisions

Description

Senate File 625 relates to gambling regulation, including gambling enforcement, license fees, tax rates, and the use of associated revenue; establishes the Iowa Horse Racing Fund; makes appropriations; and includes effective date provisions.

The Bill does the following:

• Creates a standing appropriation of $8.0 million from the Sports Wagering Receipts Fund (SWRF) to the Public Safety Equipment Fund beginning in FY 2027 for the purchase, maintenance, and replacement of equipment.
• Eliminates the portion of the annual regulatory fees assessed to casino licensees that is associated with the gaming enforcement costs of the Department of Public Safety’s (DPS’s) Division of Criminal Investigation (DCI). Instead, beginning in FY 2027, the Bill transfers to the Gaming Enforcement Fund an amount up to the amount appropriated by the General Assembly to the DPS from the Gaming Enforcement Revolving Fund for that fiscal year from wagering receipts tax received pursuant to Iowa Code section 99F.11. This transfer is made prior to deposit of wagering tax receipts into the Rebuild Iowa Infrastructure Fund (RIIF).
• Eliminates the requirement that the DCI provides the General Assembly, Legislative Services Agency, and Iowa Racing and Gaming Commission (IRGC) with an annual report detailing the activities of the DCI for each casino in the previous fiscal year.
• Redirects the tax imposed on the gross sum wagered in excess of $25.0 million in a year on horse races that are simultaneously telecast by a licensee under Iowa Code section 99D.9D to the Iowa Horse Racing Fund created in the Bill. Currently, these taxes are split between the city and county in which the racetrack is located and State funds as described in Iowa Code section 8.57(3).
• Creates an Iowa Horse Racing Fund to be used by the IRGC for distribution to entities tasked with federal horse racing regulations.
• Creates a 2.0% tax on the gross sum wagered by the pari-mutuel method as an advance deposit wager under Iowa Code section 99D.11(6)(c) in lieu of the tax imposed on the same wagers under Iowa Code section 99D.15. This tax revenue is deposited into the Iowa Horse Racing Fund created by the Bill.
• Increases the annual license fee to operate an excursion gambling boat or gambling structure from $5 per person capacity to $10 per person capacity.
• Eliminates the current tax rate structure imposed on a licensee’s AGR and replaces it with a flat tax of 22.0% for excursion gambling boats or gambling structure licensees and 24.12% if the licensee is a racetrack enclosure conducting gambling games, on all adjusted gross receipts each fiscal year.
• Increases the tax rate on sports wagering net receipts from 6.75% to 9.0%. This Bill is effective July 1, 2026 (FY 2027).

Background

AGR Taxes

Current gambling revenues are taxed by the State based on AGR from gambling games. During the 2021 Legislative Session, SF 619 (Taxation and Other Provisions Act) amended the definition of AGR to include all promotional play receipts on gambling games from the beginning of FY 2022 to the end of FY 2026 with a gradual phaseout of the tax on promotional play receipts during this time. For FY 2026, the scheduled tax rate on promotional play receipts will be 16.7% of the overall AGR tax rate. Beginning July 1, 2026 (FY 2027), AGR will exclude promotional play receipts.

The first $1.0 million in AGR is taxed at a rate of 5.0%, and the next $2.0 million in AGR is taxed at a rate of 10.0%. The tax rate imposed on AGR that exceeds the first $3.0 million is calculated on an individual fiscal year basis as follows:

• Licensees of a gambling entity with a racetrack enclosure claiming AGR of $100.0 million or more are taxed at a rate of 24.0%.
• All other licensees (those without a racetrack enclosure or claiming less than $100.0 million in AGR) are taxed at a rate of 22.0%.

There are currently 19 State-licensed gambling entities operating in Iowa. Of these 19 entities, 2 are taxed at 24.0%, and 17 are taxed at 22.0%.

Iowa Code section 99F.11(4) allocates a portion of State wagering taxes as follows:

• 0.5% of AGR to the county in which a casino is located.
• 0.5% of AGR to the city in which a casino is located.
• 0.8% of AGR tax to the County Endowment Fund. The proceeds of this Fund are distributed equally to counties that do not have a licensed casino for funding charitable organizations.
• 0.2% of AGR tax for several specified purposes: of the amount collected, the first $520,000 is allocated to the Iowa Economic Development Authority (IEDA) for cultural grants and operations. Of the amount remaining, 50.0% is allocated to the IEDA for tourism marketing and the other 50.0% is allocated to the RIIF. The wagering taxes allocated to the IEDA are first deposited into the General Fund before being appropriated back to the Department. Following the 2.0% of AGR tax allocations under Iowa Code section 99F.11(4), Iowa Code section 8.57(3) then distributes the majority of the State wagering tax to several State funds in a prioritized order. The first $144.8 million is allocated to the first six funds. State wagering taxes that are in excess of $144.8 million are deposited into the RIIF. Figure 1 shows the distribution of State wagering taxes over the past three fiscal years and the estimated FY 2025 and FY 2026 distributions. See the State Gaming Revenues — FY 2024 Fiscal Topic for more information on all State gaming revenue.

Figure 1 — Distribution of State Wagering Tax Per Iowa Code Section 8.57

Annual License Renewal Fee

Iowa Code section 99F.5 administers an annual license renewal fee of $5 per person capacity for gambling boats or gambling structures. There are 17 facilities classified as riverboats or gambling structures under Iowa Code chapter 99F. These fees are due at the end of December for a renewal at the beginning of the calendar year. These fees are deposited into the General Fund. In FY 2024, approximately $252,000 was collected in annual license renewal fees under Iowa Code section 99F.5.

Regulatory Fees and Gaming Enforcement Revolving Fund Iowa gaming facilities currently pay an annual regulatory fee assessed monthly to each facility over the course of the fiscal year that consists of two parts:

• The amount appropriated to the IRGC as determined in the annual Administration and Regulation Appropriations Bill. This amount is deposited into the Gaming Regulatory Revolving Fund.
• The DPS’s DCI costs for both pari-mutuel and excursion gambling. The gaming industry is required to pay a regulatory fee for the salaries of no more than three special agents for each gambling facility. This revenue is deposited into the Gaming Enforcement Revolving Fund. Beginning in FY 2022, the seven gaming licensees with the lowest AGR for the previous fiscal year will pay a reduced regulatory fee of 1.0 full-time equivalent (FTE) position. The DPS must annually transfer the portion of the regulatory fee attributable to the indirect support costs of the special agents and gaming enforcement officers to the General Fund of the State. Over the past seven fiscal years, the amount of the fee attributable to the indirect support costs has been $447,000 annually.

The General Assembly appropriates funds from the Gaming Enforcement Revolving Fund to the DPS in the annual Justice System Appropriations Bill. The annual Standing Appropriations Bill has permitted salary adjustments using unappropriated moneys remaining in the Gaming Enforcement Revolving Fund. Figure 2 includes the activities in the Gaming Enforcement Revolving Fund over the past three fiscal years. The total appropriation from the Gaming Enforcement Revolving Fund, including salary adjustments, to the DPS in estimated FY 2025 is approximately $12.2 million.Est. Est.

FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 Distribution of Revenue Per Iowa Code Sec. 8.57(5) Revenue Bonds Debt Service Fund 55.0$ 55.0$ 55.0$ 55.0$ 55.0$ Federal Subsidy Holdback Fund 3.8 3.8 3.8 3.8 3.8 Water Quality Infrastructure Fund 15.0 15.0 15.0 15.0 15.0 Iowa Skilled Worker and Job Creation Fund 63.8 63.8 63.8 63.8 63.8 Levee Improvement Fund 0.0 0.0 5.0 5.0 5.0 General Fund 2.3 2.3 2.3 2.3 2.3 Rebuild Iowa Infrastructure Fund 210.1 202.8 186.7 153.7 141.8 Subtotal 349.9$ 342.5$ 331.5$ 298.4$ 286.5$ Source: State Accounting System Figure 2 — Gaming Enforcement Revolving Fund Simultaneous Telecasting and Advance Deposit Wagering In accordance with Iowa Code section 99D.11(6), the IRGC issues advance deposit wagering operator licenses to entities. Advance deposit wagering allows an individual to establish an account, deposit money into the account, and use the account balance to pay for pari-mutuel wagering. Advance deposit wagers may be conducted in person at a licensed racetrack enclosure or from any other location via other electronic means. There are currently four advance deposit wagering operators licensed in the State. These wagers are currently subject to Iowa Code section 99D.15(4)(a), which imposes a 2.0% tax on the gross sum wagered on horse races and dog races that are simultaneously telecast if wagering is not conducted by a licensee under Iowa Code section 99D.9D. These wagers are deposited with the State through the gambling tax distributions in Iowa Code section 8.57(3).

Under Iowa Code section 99D.15(4)(b), the tax is only imposed on the gross sum wagered in excess of $25.0 million in a calendar year if wagering is conducted by a licensee under Iowa Code section 99D.9D. Of the wagering tax, 0.5% is remitted to the city in which the racetrack is located and 0.5% is remitted to the treasurer of the county in which the racetrack is located. The remaining 1.0% is deposited through the gambling tax distribution in Iowa Code section 8.57(3).

In calendar year (CY) 2024, approximately $521,000 was collected in taxes from simultaneous telecasting not conducted by an in-state licensee that was subject to the distributions under Iowa Code section 8.57(3). Of this $521,000, there was $455,000 collected from licensed advance deposit wagering operators.

To date, the State has not collected any taxes under Iowa Code section 99D.15(4)(b), as the annual wagers on simultaneous telecasting conducted by the licensee have been less than $25.0 million.

Sports Wagering Receipts Fund (SWRF) The SWRF was established in FY 2020 by 2019 Iowa Acts, chapter 132 (Sports Wagering and Fantasy Sports Act), which authorized sports wagering and fantasy sports contests in the State. The Fund receives sports wagering taxes and Internet fantasy sports contest taxes. Figure 3 includes the FY 2023, FY 2024, and FY 2025 year-to-date revenue and appropriations from the SWRF.FY 2022 FY 2023 FY 2024

Resources

Beginning Account Balance 1,099,972$ 1,237,235$ 822,661$ Balance Adjustment 267 0 2,335 Fees 10,346,065 9,611,723 11,442,489 Interest 9,858 81,343 119,651 Reversions 337,341 703,898 18,428 Total Revenues 11,793,503$ 11,634,200$ 12,405,564$

Dispostions

Appropriation to DPS 10,556,268$ 10,778,483$ 11,442,487$ Refunds 0 33,056 0 Total Dispostions 10,556,268$ 10,811,539$ 11,442,487$ Ending Balance 1,237,235$ 822,661$ 963,077$ Source: State Accounting System Figure 3 — Sports Wagering Receipts Fund

Public Safety Equipment Fund

The Public Safety Equipment Fund has received annual appropriations totaling $5.0 million since its creation in FY 2022. These appropriations have consisted of $2.5 million from the General Fund and $2.5 million from the RIIF. Moneys in the Fund may be used for the purchase, maintenance, replacement, installation, and licensing costs of equipment used by the DPS.

Assumptions

• FY 2024 annual casino license fees of $252,000 under Iowa Code section 99F.5 are assumed as the base for future fiscal years when calculating the increase to the General Fund in fees from $5 to $10 per person capacity.
• FY 2024 AGR, including promotional play numbers, are assumed as the base for future estimates for wagering tax receipts under the new tax structure.
• Any increase in AGR tax is an increase to wagering taxes deposited into the RIIF.
• It is unknown how much will be appropriated annually by the General Assembly to the DPS from the Gaming Enforcement Revolving Fund. As a result, the wagering taxes that will be credited to the Gaming Enforcement Revolving Fund prior to deposit in the RIIF are unknown. However, for the purposes of this Fiscal Note, the estimated FY 2025 appropriation of approximately $12.2 million from the Gaming Enforcement Revolving Fund to the DPS is used.
• The Iowa Horse Racing Fund created under the Bill will not receive any taxes from wagering on simultaneously telecast horse and dog races conducted by a licensee under Iowa Code section 99D.9D, pursuant to Iowa Code section 99D.15(4)(b).
• Approximately $455,000 of the $521,000 collected in simultaneous telecasting taxes in FY 2024 and deposited pursuant to Iowa Code section 8.57(3) was from advance deposit wagering operators licensed under Iowa Code section 99D.11. This is assumed as the base for future fiscal years when calculating the fiscal impact to advance deposit wagering taxes under the Bill.
• Any simultaneous telecasting advance deposit wagering taxes deposited to the Iowa Horse Racing Fund created will decrease wagering taxes deposited into the RIIF.
• FY 2024 sports wagering net receipts are assumed as the base for future estimates for sports wagering taxes. It is assumed that future sports wagering net receipts will match FY 2024 sports wagering net receipts.FY 2023 FY 2024 FY 2025*

Revenue

Beginning Account Balance 12,228,656$ 15,330,981$ 28,903,431$ Pari-Mutuel Receipts 12,890,229 14,343,838 12,312,022 Interest 462,097 978,612 998,222 Total Revenues 25,580,981$ 30,653,431$ 42,213,675$

Appropriations

Sports Tourism Program 1,500,000$ 0$ 0$ Gambling Treatment Program 1,750,000 1,750,000 1,750,000 General Fund - Endow Iowa Tax Credit 7,000,000 0 0 Total Appropriations 10,250,000$ 1,750,000$ 1,750,000$ Ending Balance 15,330,981$ 28,903,431$ 40,463,675$ Source: State Accounting System *Year-to-date as of April 16, 2025.

Fiscal Impact

Figure 4 summarizes the following changes under the Bill. The fiscal impact by fund is described in greater detail below.

• General Fund: In FY 2027 and after, the estimated net decrease to the General Fund is $195,000 due to the $447,000 decrease in indirect support costs and an increase of $252,000 due to the doubling of the casino annual license fees.
• Rebuild Iowa Infrastructure Fund (RIIF): In FY 2027 and after, the estimated net decrease to the RIIF is $4.3 million. The net changes include an additional $8.4 million in wagering taxes due to the tax rate changes, a decrease of $12.2 million in available wagering taxes due to the off-the-top transfer to the Gaming Enforcement Revolving Fund, and a decrease of $455,000 in revenue due to the change in tax deposit location for advance deposit wagering on simulcast racing.
• Gaming Enforcement Revolving Fund: Stable revenue to the Gaming Enforcement Revolving Fund due to the replacement of the annual regulatory fee with a gambling tax off-the-top transfer. The appropriation will be determined by annual appropriations enacted by the General Assembly.
• Sports Wagering Receipts Fund (SWRF): For FY 2027 and after, the estimated net decrease to the SWRF is $3.2 million due to $4.8 million in additional taxes and an annual appropriation of $8.0 million to the Public Safety Equipment Fund.
• Public Safety Equipment Fund: Appropriations of $8.0 million from the SWRF to the Public Safety Equipment Fund in FY 2027 and after.
• Iowa Horse Racing Fund: For FY 2027 and after, the estimated deposit to the Iowa Horse Racing Fund is $455,000 from the change in tax deposit location for advance deposit wagering on simulcast racing.

Figure 4 — Estimated Fiscal Impact by Fund Beginning in FY 2027

Sources

• Iowa Racing and Gaming Commission
• LSA analysis and calculations
• State Accounting System